This essay discusses and analyzes thecurrent economic situation in South Caucasus, main challenges and developmentsin the region. I am going to show the possibilities of economic cooperationbetween Georgia, Armenia, and Azerbaijan. Also, Turkey in understanding ofeconomic cooperation in transportation of regional trade and energy.

As weknow, South Caucasus is a meeting point of three great regional powers, whichare Turkey, Iran and Russian Federation. All of them are trying to gain andincrease their influence in this region. South Caucasus has always been geopoliticallyand economically important region, that’s the benefits of being at thecrossroad of Europe and Asia with a necessary energy direction.

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South Caucasusis an essential part of strategic South Gas corridor, which is giving Caspian-basinnatural gas from Azerbaijan to European markets in the West. It will be themain resource in European energy security. In addition, we should consider theSouth Caucasus’s location on the “New Silk Road” from China to Europeancountries.The South Caucasus includes three statesof Georgia, Azerbaijan, and Armenia. After 20 years the breakup of the SovietUnion, the republics of Georgia, Armenia and Azerbaijan are still coming acrosswith noticeable challenges in building sustainable and inclusive economicgrowth and in creating democratic states and pluralistic societies.Furthermore, all of these countries have potential in creating prosperouseconomies with their rich human resources and cultural heritages.

After the EUEastern Partnership policy was launched, the importance of the South Caucasushas been increased. The EU is committed to building strong and mutuallybeneficial relations with this region. The Association Agreements/Deep andComprehensive Free Trade Areas (AA/DCFTAs), concluded in 2014, have brought therelations between the EU and Georgia to a new level.

These agreements aim atstrengthening political association and economic integration and create newopportunities in the region as increasing economic development. As I alreadymentioned, South Caucasus is faced with the strategic Southern Gas Corridor. Aftercompletion, it will deliver Caspian-basin natural gas (first from Azerbaijan,and later perhaps from Turkmenistan, northern Iraq, or other regionalproducers) via Azerbaijan, Georgia, and Turkey, to European markets in theBalkans and Italy. The South Caucasus is situated at themeeting point of the Russian Federation, Iran, Turkey, Europe, and CentralAsia. The oil and gas reserves in the Caspian Sea and Central Asia and thepipelines to Europe through the South Caucasus East-West energy corridor emphasizethe geopolitical importance of the region. The turn from the Soviet system todiverse democratic societies and functioning market economies have been goingthrough with political and social disruption, governance deficits, wars,occupation, and conflicts in different regions.

For the last two decades thethree South Caucasus countries has experienced very deeply social distress,severe armed conflicts, and territorial disputes, namely with regard toNagorno-Karabakh, Abkhazia and South Ossetia/Tskinvali Region and war againstRussian Federation. Today there are still around 1.2 million internallydisplaced persons (IDPs) and refugees in the three countries. Despiteinternational mediation, the conflicts are still frozen. Armenia remainscompletely isolated mainly because its borders with Azerbaijan and Turkey areclosed. The country has friendly relations with Iran and after joining to theEurasian Economic Union,2 continues to depend economically and politically onthe Russian Federation.

Due to regulatory reforms, an improved businessenvironment and higher exports of commodities, Armenia’s economy is slowlyrecovering. According to World Bank GDP (2015) is 10.561 $billion. However,poverty and unemployment remain high, particularly in rural areas and havefurther increased over the last few years. Remittances from working migrantsand the Armenian diaspora play an important role for family income support andinvestments in the country.

Subsistence agriculture remains the majoremployment sector, accounting for 45% of the working population. Marketliberalization has placed large constraints on the once heavily subsidizedagricultural sector and colluding interests pose threats to fair competition.The political climate remains difficult: According to Freedom House Armenia israted as ‘partly free’ and its media as ‘not free’. The parliamentary electionsin May 2012 were characterized by a competitive, vibrant and largely peacefulcampaign